The Indian rupee is experiencing one of its most challenging years in recent history, with 2025 marking a significant downturn for the currency against the US dollar. From costing less than four rupees at independence, the dollar now commands over 89 rupees and is testing the psychologically significant 90-rupee threshold.
The Steady Decline of India's Currency
So far in 2025, the Indian rupee has depreciated by 4.3%, earning the distinction of being Asia's worst-performing currency this year. The situation reached a critical point earlier this week when the rupee slipped to 89.42 per dollar in early trading sessions. This decline was driven by robust dollar demand from importers and financial institutions.
At the interbank foreign exchange market, the rupee opened at 89.19 before rapidly falling to 89.40, continuing a downward spiral that accelerated after November 21, 2025, when it breached previous record lows. Three primary factors contributed to this currency crisis: delayed India-US trade deal negotiations, persistent foreign investor selling, and limited intervention from the Reserve Bank of India.
Root Causes: Global Pressures and Domestic Challenges
Economist Arun Kumar, retired professor at Jawaharlal Nehru University, provides crucial insights into the rupee's predicament. "When the rupee slides it does affect the broader economy," Kumar stated, emphasizing that the currency's current troubles stem from a combination of international trade tensions, declining foreign investment, and rising economic uncertainty.
The historical context reveals how dramatically the rupee's position has shifted. While debates continue about whether one US dollar equaled approximately Rs 4.16 in 1947, there's consensus that the rupee possessed substantially greater purchasing power during the early post-independence period.
According to Kumar, both external policy developments and domestic economic factors share responsibility for the currency's decline. "Currency's value with international currency depends on many factors, it can be trade, expectations and what the people feel will happen in the future. All the factors external and internal are involved," he explained.
Political Triggers and Market Reactions
The year began with moderate optimism. The rupee showed some weakness in January but regained strength during March and April. By early May, it reached its strongest position at 83.7538 per dollar, fueled by expectations of an imminent trade agreement with the United States.
However, July brought dramatic changes when US President Donald Trump announced tariff measures that exceeded market expectations. The administration also threatened penalties against India for purchasing crude oil from Moscow, accusing New Delhi of indirectly financing Russia's military actions in Ukraine. These developments dashed India's hopes for preferential treatment among Asian nations and resulted in the rupee's worst monthly performance since 2022.
The situation deteriorated further in August when Washington imposed a 50% tariff on most Indian exports—the highest rate applied to any Asian nation—along with an additional 25% penalty tariff targeting India's trade relations with Russia. This pushed the rupee beyond the Rs 88 threshold to fresh record lows.
September provided no relief as reports indicated President Trump was encouraging European countries to implement similar Russia-related penalty tariffs against India. Another shock came with proposals to increase H-1B visa fees from a few hundred dollars to a staggering $100,000, disproportionately affecting Indian technology professionals.
The most severe impact, however, originated from financial markets rather than policy decisions. By late November, foreign investors had withdrawn nearly $16.3 billion from Indian markets, approaching the record sell-off witnessed in 2022. Elevated US tariffs, stretched stock valuations, corporate earnings concerns, and questions about domestic growth prospects all contributed to this massive capital outflow.
RBI's Delicate Balancing Act
The Reserve Bank of India maintained a measured approach throughout the currency crisis. While traders noted RBI interventions during February and October, the central bank notably abstained from intervening on November 21 when the rupee abruptly crashed past 89.
The RBI had previously defended the 88.80 level, but when this support level broke, short-covering triggered an accelerated decline that pushed the currency through 89 within hours. Bloomberg estimates indicate that since July alone, the central bank has sold more than $30 billion to prevent the rupee from establishing new record lows.
India's foreign-exchange reserves remain substantial at approximately $693 billion, covering roughly eleven months of imports. However, analysts observe that the RBI under its new governor, appointed in December 2024, is adopting a more restrained strategy, intervening only when absolutely necessary to control excessive volatility.
Economic Implications and Future Outlook
The rupee's depreciation presents a complex mixture of benefits and challenges for the Indian economy. A weaker currency makes Indian goods more competitive in international markets, providing crucial support to exporters facing significant tariff pressures. It also benefits families receiving remittances from abroad, as each dollar converts into more rupees.
However, the disadvantages are substantial. Import costs rise significantly, affecting essential items including crude oil, fertilizers, and electronic goods, thereby increasing inflationary pressures throughout the economy.
Arun Kumar elaborated on this dual impact: "When the rupee slides it does affect the broader economy. Because on one hand exports are held while imports are reduced... therefore, the sliding rupee would help somewhat positively in the growth rate of the economy but the inflation would rise, which will be negative for the economy."
Kumar further noted that "If the exports are more, then the demand increases in the economy. When imports becomes less even than the demand in the economy increases. Therefore, the sliding rupee would help somewhat positively in the growth rate of the economy but the inflation would rise, which will be negative for the economy."
The economist emphasized that a gradual currency decline is more manageable than sudden drops, as it prevents inflation from accelerating too rapidly while still supporting export competitiveness.
Looking forward, some traders speculate that if the US-India trade deal remains stalled, the rupee could break past the 90 per dollar threshold soon. This would represent India's most substantial annual currency decline since 2022, when Russia-Ukraine conflict sent global oil prices soaring above $100 per barrel.
What makes 2025 particularly notable is that while many other Asian currencies, including the Taiwan Dollar, Thai Baht, and Malaysian Ringgit, have strengthened despite a softening US dollar, India stands as a conspicuous exception. Nations like Thailand, Malaysia, and Taiwan aren't confronting the severe US tariff measures that India currently faces, giving their export-dependent sectors a significant advantage.
